UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-2380
SPORTS ARENAS, INC.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1944249
-------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
5230 Carroll Canyon Road, Suite 310, San Diego, California 92121
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 587-1060
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's only class of common stock
($.01 par value) as of October 31, 2000 was 27,250,000 shares.
<PAGE>
SPORTS ARENAS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I - Financial Information:
Item 1.- Consolidated Condensed Financial Statements:
Balance Sheets as of September 30, 2000 (unaudited)
and June 30, 2000 ............................................ 1-2
Unaudited Statements of Operations for the
Three Months Ended September 30, 2000 and 1999 ............... 3
Unaudited Statements of Cash Flows for the
Three Months Ended September 30, 2000 and 1999 ............... 4
Notes to Financial Statements .................................. 5-8
Item 2.- Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 9-11
Item 3.- Quantitative and Qualitative Disclosures about Market Risk .. 12
Part II - Other Information ........................................ 13
Signatures ....................................................... 14
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September 30, June 30,
2000 2000
------------ ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 23,027 $ 13,961
Current portion of notes receivable- affiliate -- 50,000
Other receivables 112,195 193,510
Inventories 276,933 304,906
Prepaid expenses 279,888 238,719
------------ ----------
Total current assets 692,043 801,096
------------ ----------
Receivables due after one year:
Note receivable- affiliate, net 2,787 73,866
Less current portion -- (50,000)
------------ ----------
2,787 23,866
------------ ----------
Property and equipment, at cost:
Land 678,000 678,000
Buildings 2,461,327 2,461,327
Equipment and leasehold and tenant improvements 2,515,534 2,347,767
------------ ----------
5,654,861 5,487,094
Less accumulated depreciation and amortization (2,242,911) (2,160,132)
------------ ----------
Net property and equipment 3,411,950 3,326,962
------------ ----------
Other assets:
Undeveloped land, at cost 1,507,052 1,501,318
Intangible assets, net 234,048 246,123
Investments 549,446 564,446
Other 135,241 137,425
------------ ----------
2,425,787 2,449,312
------------ ----------
$6,532,567 $6,601,236
============ ==========
1
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
September 30, June 30,
2000 2000
------------ ----------
(Unaudited)
Current liabilities:
Assessment district obligation- in default $2,914,574 $2,831,180
Notes payable-short term 2,050,000 1,350,000
Current portion of long-term debt 1,819,000 1,874,000
Accounts payable 937,501 796,483
Accrued payroll and related expenses 225,980 164,170
Accrued property taxes- in default 382,706 356,178
Accrued interest 89,638 41,079
Other liabilities 176,369 216,009
------------ ----------
Total current liabilities 8,595,768 7,629,099
------------ ----------
Long-term debt, excluding current portion 1,951,365 1,967,169
------------ ----------
Distributions received in excess of basis
in investment 14,525,401 14,498,208
------------ ----------
Other liabilities 135,831 123,831
------------ ----------
Minority interest in consolidated subsidiary 1,712,677 1,712,677
------------ ----------
Shareholders' equity deficit:
Common stock, $.01 par value,
50,000,000 shares authorized, 27,250,000
shares issued and outstanding 272,500 272,500
Additional paid-in capital 1,730,049 1,730,049
Accumulated deficit (20,099,532) (19,040,805)
------------ ----------
(18,096,983) (17,038,256)
Less note receivable from shareholder (2,291,492) (2,291,492)
------------ ----------
Total shareholders' deficit (20,388,475) (19,329,748)
------------ ----------
Commitments and contingencies (Note 6)
$6,532,567 $6,601,236
============ ==========
See accompanying notes to consolidated condensed financial statements.
2
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
---------- ----------
Revenues:
Bowling $ 661,597 $ 624,572
Rental 168,833 156,277
Golf 287,009 123,930
Other 34,282 28,457
Other-related party 44,351 42,699
---------- ----------
1,196,072 975,935
---------- ----------
Costs and expenses:
Bowling 533,377 534,770
Rental 69,283 62,742
Golf 526,176 272,872
Development 41,280 61,333
Selling, general, and administrative 827,345 848,391
Depreciation and amortization 99,116 95,569
----------- ----------
2,096,577 1,875,677
----------- ----------
Loss from operations (900,505) (899,742)
----------- ----------
Other income (charges):
Investment income:
Related party -- 9,920
Other -- 316
Interest expense:
Development activities (83,394) (63,376)
Other and amortization of finance costs (129,990) (88,768)
Loss on sale of undeveloped land -- (638)
Equity in income of investees 55,162 141,089
----------- ----------
(158,222) (1,457)
----------- ----------
Net loss $(1,058,727) $(901,199)
=========== ==========
Basic and diluted net loss per common
share (based on 27,250,000 weighted
average common shares outstanding) from:
Net loss ($0.04) ($0.03)
======= =======
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
----------- ---------
Cash flows from operating activities:
Net loss ($1,058,727) ($901,199)
Adjustments to reconcile net loss to the
net cash used by operating activities:
Amortization of deferred financing costs 2,280 2,280
Depreciation and amortization 99,116 95,569
Equity in income of investees (55,162) (141,089)
Deferred income 12,000 12,000
Loss on sale of undeveloped land -- 638
Interest accrued on assessment
district obligations 83,394 63,377
Changes in assets and liabilities:
Decrease in receivables 81,315 4,154
Decrease in inventories 27,973 5,669
Increase in prepaid expenses (41,169) (69,351)
Increase in accounts payable 141,018 118,566
Increase (decrease) in accrued expenses 97,257 (32,220)
Other 8,997 (5,904)
----------- ----------
Net cash used by operating activities (601,708) (847,510)
----------- ----------
Cash flows from investing activities:
(Increase) decrease in notes receivable 71,079 (6,623)
Capital expenditures (167,767) (43,576)
Increase in development costs on
undeveloped land (5,734) (17,278)
Proceeds from sale of undeveloped land -- 190,362
Distributions from investees 84,000 157,000
----------- ----------
Net cash provided (used) by
investing activities (18,422) 279,885
----------- ----------
Cash flows from financing activities:
Scheduled principal payments on long-term debt (70,804) (68,934)
Extinguishment of long-term debt -- (75,927)
Proceeds from note payable 700,000 550,000
----------- ----------
Net cash provided by financing activities 629,196 405,139
----------- ----------
Net increase (decrease) in cash and
cash equivalents 9,066 (162,486)
Cash and cash equivalents, beginning of year 13,961 357,906
----------- ----------
Cash and cash equivalents, end of year $ 23,027 $ 195,420
=========== ==========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SPORTS ARENAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999 (Unaudited)
1. The information furnished reflects all adjustments which management
believes are necessary to a fair statement of the Company's financial
position, results of operations and cash flows for the interim periods.
2. Due to the seasonal fluctuations of the bowling and golf shaft
manufacturing operations, the financial results for the interim periods
ended September 30, 2000 and 1999, are not necessarily indicative of
operations for the entire year.
3. Investments:
(a) Investments consist of the following:
September 30, June 30,
2000 2000
----------- -----------
Vail Ranch Limited Partnership
(equity method) $549,446 $564,446
=========== ===========
Investment in UCV, L.P. classified as
liability- Distributions received
in excess of basis in investment $14,525,401 $14,498,208
=========== ===========
The following is a summary of the equity in income (loss) of the
investments accounted for by the equity method:
2000 1999
--------- ---------
UCV, L.P. $ 70,162 $ 141,089
Vail Ranch Limited Partnership (15,000) --
--------- ---------
$ 55,162 $ 141,089
========= =========
The following is a summary of distributions received from investees:
2000 1999
-------- ---------
UCV, L.P. $ 84,000 $ 157,000
Vail Ranch Limited Partnership -- --
-------- ---------
$ 84,000 $ 157,000
======== =========
(b) Investment in UCV, L.P.
The operating results of this investment are included in the accompanying
consolidated condensed statements of operations based upon the
partnership's fiscal year (March 31). Summarized information from UCV,
L.P.'s (UCV) unaudited statements of income for the three-month periods
ended June 30, 2000 and 1999 are as follows:
2000 1999
--------- ---------
Revenues $1,235,000 $1,158,000
Operating and general and
administrative costs 407,000 392,000
Depreciation 5,000 7,000
Interest expense 683,000 477,000
Net income 140,000 282,000
5
<PAGE>
4. Undeveloped land:
RCSA Holdings, Inc. (RCSA), a wholly owned subsidiary of the Company, owns a
50 percent managing general partnership interest in Old Vail Partners, a
general partnership (OVPGP), which owns 33 acres of undeveloped land in
Temecula, California. On September 23, 1999, the other partner assigned his
partnership interest to Downtown Properties, Inc., a wholly owned subsidiary
of the Company. Once the legal matters described below are resolved, OVPGP is
obligated to assign its interest in the 33 acres of land to Old Vail
Partners, L.P. The 33 acres of land owned by OVPGP are located within a
special assessment district of the County of Riverside, California (the
County) which was created to fund and develop roadways, sewers, and other
required infrastructure improvements in the area necessary for the owners to
develop their properties. Property within the assessment district is
collateral for an allocated portion of the bonded debt that was issued by the
assessment district to fund the improvements. The annual payments (required
in semiannual installments) due related to the bonded debt are approximately
$144,000. The payments continue through the year 2014 and include interest at
approximately 7-3/4 percent. OVPGP has been delinquent in the payment of
property taxes and assessments for over the last eight years. The property is
currently subject to default judgments to the County of Riverside, California
totaling approximately $2,242,342 regarding delinquent assessment district
payments ($1,859,636) and property taxes ($382,706). On June 23, 2000, the
County of Riverside agreed to remove the property from the planned public
sale originally scheduled for June 26, 2000 in exchange for an immediate
payment of $330,000 with the balance of property taxes due on December 29,
2000. Separately, the County of Riverside stated that a foreclosure sale
related to the default judgement for assessment district payments would not
be scheduled until some time after January 1, 2001.
The delinquent principal, interest and penalties ($1,859,636) and the
remaining principal balance of the allocated portion of the assessment
district bonds ($1,054,938) are classified as "Assessment district
obligation- in default" in the consolidated balance sheet at September 30,
2000. In addition, the consolidated balance sheet at September 30, 2000
includes $382,706 of delinquent property taxes and late fees related to the
33-acre parcel.
In November 1993, the City of Temecula adopted a general development plan
that designated the property owned by OVPGP as suitable for "professional
office" use, which is contrary to its zoning as "commercial" use. As part of
the adoption of its general development plan, the City of Temecula adopted a
provision that, until the zoning is changed on properties affected by the
general plan, the general plan shall prevail when a use designated by the
general plan conflicts with the existing zoning on the property. The result
is that the City of Temecula has effectively down-zoned OVPGP's property from
a "commercial" to "professional office" use. The property is subject to
assessment district obligations that were allocated in 1989 based on a higher
"commercial" use. Since the assessment district obligations are not subject
to reapportionment as a result of re-zoning, a "professional office" use is
not economically feasible due to the disproportionately high allocation of
assessment district costs. OVPGP filed suit against the City of Temecula
claiming that, if the effective re-zoning is valid, the action is a taking
and damaging of OVPGP's property without payment of just compensation. OVPGP
sought to have the effective re-zoning invalidated and an unspecified amount
of damages. OVPGP previously suffered adverse outcomes in other suits filed
in relation to this matter. A stipulation was entered that dismissed this
suit without prejudice and agreed to toll all applicable statute of
limitations while OVPGP and the City of Temecula attempted to informally
resolve this litigation. On October 23, 2000, the City of Temecula's city
council granted preliminary approval of OVPGP's request for re-zoning and
general plan amendment related to a development plan which includes a
combination of multi-family and commercial uses. Once the re-zoning and
general plan amendment requested by OVPGP are adopted by the City of
Temecula, OVPGP will abandon its legal claims against the City of Temecula.
5. Notes payable:
Pursuant to a short term loan agreement with the Company's partner in UCV,
the Company borrowed an additional $700,000 in the three months ended
September 30, 2000, $350,000 on October 17, 2000 and $150,000 on November 10,
2000.
6
<PAGE>
The Company has agreed in principle to repay principal from the proceeds of
the following events: $500,000 from the sale proceeds of the office building
as disclosed in Note 7(a); up to $500,000 from any distributions received
from proceeds of future refinancing of UCV; up to $350,000 from distributions
received from the sale of the 33 acres owned by Old Vail Partners, a general
partnership; up to $350,000 from 50% of the distributions received from the
sale of the shopping center in which Old Vail Partners, Ltd. is a partner.
The remaining balance will become due on July 31, 2001, however, the Company
will have the ability to extend the due date for up to one additional year.
6. Contingencies:
The Company is involved in other various routine litigation and disputes
incident to its business. In management's opinion, based in part on the
advice of legal counsel, none of these matters will have a material adverse
effect on the Company's financial position.
7. Significant events:
(a) Agreement to sell Office Building:
On September 28, 2000 the Company agreed to sell the office building for
$3,725,000. The sale is contingent on the existing lender's approval of the
buyer assuming the loan (balance of $1,953,353 as of September 30, 2000)
related to the office building. The following is a summary of the results
from operations of the office building included in the financial
statements:
2000 1999
---------- ---------
Rents $ 127,000 $ 113,000
Costs 28,000 28,000
Allocated SG&A 6,000 6,000
Depreciation 16,000 21,000
---------- ---------
Income from operations 77,000 58,000
Interest expense 41,000 42,000
---------- ---------
Income from continuing
operations 36,000 16,000
========== =========
(b) Agreement to sell Valley Bowl real estate:
On October 23, 2000 the Company agreed to sell the land and building
occupied by the Valley Bowling Center for $2,215,000. The land and building
are collateral for a $1,660,977 note payable as of September 30, 2000. The
sale is contingent on the buyer obtaining financing. Once the building is
sold the bowling center will discontinue its operations. The following is a
summary of the results of operations of the bowling center included in the
financial statements:
2000 1999
---------- ---------
Revenues $ 238,000 $ 278,000
Costs 171,000 204,000
Direct SG&A 63,000 73,000
Allocated SG&A 17,000 22,000
Depreciation 23,000 23,000
---------- ---------
Income from operations ( 36,000) ( 44,000)
Interest expense 37,000 36,000
---------- ---------
Income from continuing
operations ( 73,000) ( 80,000)
=========== =========
7. Business segment information:
The Company operates principally in four business segments: bowling centers,
commercial real estate rental, real estate development, and golf shaft
manufacturing. Other revenues, which are not part of an identified segment,
consist of property management and development fees (earned from both a
property 50 percent owned by the Company and a property in which the Company
has no ownership) and commercial brokerage.
7
<PAGE>
The following is summarized information about the Company's operations by
business segment.
<TABLE>
<CAPTION>
Real Estate Real Estate Unallocated
Bowling Rental Development Golf And Other Totals
------------ ------------ ------------ ------------ ------------ ------------
THREE MONTHS ENDED SEPTEMBER 30, 2000:
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ 661,597 $ 185,081 $ -- $ 287,009 $ 78,633 $ 1,212,320
Depreciation and amortization... 25,842 29,612 -- 33,585 10,077 99,116
Interest expense ............... 37,417 41,423 83,394 2,019 49,131 213,384
Equity in income of investees .. -- 70,162 (15,000) -- -- 55,162
Loss on sale ................... -- -- -- -- -- --
Segment profit (loss) .......... (155,380) 108,925 (144,674) (742,411) (125,187) (1,058,727)
Investment income .............. --
Loss from operations ........... (1,058,727)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999:
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ 624,572 $ 171,829 $ -- $ 123,930 $ 71,156 $ 991,487
Depreciation and amortization... 26,670 34,404 -- 22,202 12,293 95,569
Interest expense ............... 36,285 41,754 64,397 4,231 5,477 152,144
Equity in income of investees .. -- 141,089 -- -- -- 141,089
Loss on sale ................... -- -- (638) -- -- (638)
Segment profit (loss) .......... (201,625) 168,018 (131,368) (636,120) (110,340) (911,435)
Investment income .............. 10,236
Loss from operations ........... (901,199)
</TABLE>
2000 1999
----------- ---------
Revenues per segment schedule .. $1,212,320 $ 991,487
Intercompany rent eliminated ... (16,248) (15,552)
----------- ---------
Consolidated revenues .......... $1,196,072 $ 975,935
=========== =========
8. Liquidity
The accompanying consolidated condensed financial statements have been
prepared assuming the Company will continue as a going concern. The Company
has suffered recurring losses, has a working capital deficiency, and is
forecasting negative cash flows for the next twelve months. These items raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent on either
refinancing or selling certain real estate assets or increases in the sales
volume of its subsidiary, Penley Sports. The consolidated condensed financial
statements do not contain adjustments, if any, including diminished recovery
of asset carrying amounts, that could arise from forced dispositions and
other insolvency costs.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
---------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS:
---------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Excluding the balance of the assessment-district-obligation-in-default and
property taxes in default related to the same property which are included in
current liabilities, the Company has a working capital deficit of $4,606,445 at
September 30, 2000, which is a $965,800 increase from the similarly calculated
working capital deficit of $3,640,645 at June 30, 2000. The decrease in working
capital is primarily attributable to the cash used by operating activities for
the three months ended September 30, 2000. The following is a schedule of the
cash provided (used) before changes in assets and liabilities, segregated by
business segments:
2000 1999 Change
---------- ---------- ---------
Bowling $(129,000) (174,000) $ 45,000
Rental 70,000 63,000 7,000
Golf (709,000) (614,000) (95,000)
Development (46,000) (67,000) 21,000
General corporate expense and
other (103,000) (76,000) (27,000)
---------- ---------- ---------
Cash used by continuing
operations (917,000) (868,000) (49,000)
Capital expenditures (174,000) (61,000) (113,000)
Principal payments on long-term
debt (71,000) (69,000) (2,000)
---------- ---------- ---------
Cash used (1,162,000) (998,000) (164,000)
========== ========== =========
Distributions received from
investees 84,000 157,000 (73,000)
========== ========== =========
The Company has been unable to generate sufficient cash flow from operating
activities to meet scheduled principal payments on long-term debt and capital
replacement needs during the last several years. It has used its share of
distributions from investees and proceeds from refinancings and sales of assets
to fund these deficits.
As described in Note 4 of the Notes to Consolidated Condensed Financial
Statements, OVPGP is delinquent in the payment of special assessment district
obligations and property taxes on 33 acres of undeveloped land. The annual
obligation for the assessment district is approximately $144,000. The County of
Riverside obtained judgments for the default in the delinquent assessment
district payments. The amounts due to cure the judgment for the default under
the assessment district obligation on the 33 acre parcel as of September 30,
2000 was approximately $1,859,000. The principal balance of the allocated
portion of the bonds ($1,384,153 as of September 30, 2000), and delinquent
interest and penalties ($1,530,421 as of September 30, 2000) are classified as
"Assessment district obligation- in default" in the consolidated balance sheet.
In addition, the consolidated balance sheet includes $382,706 of delinquent
property taxes and late fees as of September 30, 2000. On June 23, 2000, the
County of Riverside agreed to remove the property from the planned public sale
originally scheduled for June 26, 2000 in exchange for an immediate payment of
$330,000 with the balance of property taxes due on December 29, 2000.
Separately, the County of Riverside stated that a foreclosure sale related to
the default judgement for assessment district payments would not be scheduled
until some time after January 1, 2001. The Company estimates the value of this
land is approximately $4,000,000 to $5,000,000 if the property was zoned
"commercial". However, the City of Temecula adopted a general development plan
as a means of down-zoning the property to a lower use and, if uncontested, might
have significantly impaired the value of the property. The Company contested
this action. On October 23, 2000, the City of Temecula's city council granted
preliminary approval of OVPGP's request for re-zoning and general plan amendment
related to a development plan which includes a combination of multi-family and
commercial uses. Once the re-zoning and general plan amendment requested by
OVPGP are adopted by the City of Temecula, OVPGP will abandon its legal claims
against the City of Temecula. OVPGP is now marketing the property for sale.
On September 28, 2000 the Company agreed to sell the office building for
$3,725,000. The sale is contingent on the existing lender's approval of the
buyer assuming the loan (balance of $1,953,353 as of September 30, 2000) related
to the office building.
9
<PAGE>
On October 23, 2000 the Company agreed to sell the land and building occupied by
the Valley Bowling Center for $2,215,000. The land and building are collateral
for a $1,660,977 note payable as of September 30, 2000. The sale is contingent
on the buyer obtaining financing. Once the building is sold the bowling center
will discontinue its operations.
Excluding the possible sale of the Valley Bowl real estate and the closing of
that bowling center, Management estimates negative cash flow of $500,000 to
$700,000 for the remaining quarters of the year ending June 30, 2001 from
operating activities after adding the estimated sales proceeds from the sale of
the office building and deducting capital expenditures and principal payments on
notes payable. Management expects continuing cash flow deficits until Penley
Sports develops sufficient sales volume to become profitable. However, there can
be no assurances that Penley Sports will ever achieve profitable operations.
Management is currently evaluating other sources of working capital from the
sale of undeveloped land in Temecula or obtaining additional investors in Penley
Sports to provide sufficient funds for the expected future cash flow deficits.
If the Company is not successful in obtaining other sources of working capital
this could have a material adverse effect on the Company's ability to continue
as a going concern.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations are forward-
looking statements that necessarily are based on certain assumptions and are
subject to certain risks and uncertainties. These forward-looking statements are
based on management's expectations as of the date hereof, and the Company does
not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from that contained
in or suggested by these forward-looking statements as a result of the factors
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in the Company's filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following is a summary of the changes in the results of operations of the
three-month period ended September 30, 2000 to the same period in 1999 and a
discussion of the significant changes:
<TABLE>
<CAPTION>
Rental Real Estate Unallocated
Bowling Operation Development Golf And Other Totals
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ 37,025 $ 13,252 -- $ 163,079 $ 7,477 $ 220,833
Costs .......................... (1,393) 6,541 (20,053) 253,304 -- 238,399
SG&A-direct .................... (3,322) -- -- 2,895 (19,923) (20,350)
SG&A-allocated ................. (4,809) -- -- 4,000 809 --
Depreciation and amortization .. (828) (4,792) -- 11,383 (2,216) 3,547
Interest expense ............... 1,132 (331) 18,997 (2,212) 43,654 61,240
Equity in investees ............ -- (70,927) (15,000) -- -- (85,927)
Loss on sale ................... -- -- 638 -- -- 638
Segment profit (loss) .......... 46,245 (59,093) (13,306) (106,291) (14,847) (147,292)
Investment income .............. (10,236)
Loss from operations ........... (157,528)
</TABLE>
Note: The change in rental revenues and SG&A expenses do not include the
effect of the net change in elimination of intercompany rent of $696.
10
<PAGE>
BOWLING OPERATIONS:
Bowl revenues increase by 6% primarily due to a 22% increase ($77,000) in one of
the bowling center's revenues (Grove Bowl). This was partially offset by a 14%
decrease in Valley Bowl's revenues ($40,000). The Grove Bowl's revenues have
consistently increased since the surrounding shopping center was redeveloped and
reopened in March 2000. Grove Bowls increase was the result of a combination of
a 15% increase in games bowled and an overall increase in the average price of
5%. Valley Bowl's decrease in revenues is part of consistent decline that
reflective of its poor location in a declining bowling market.
There was no significant change in bowling costs, however Grove Bowl's costs
increased by 10% ($32,000) and Valley Bowl's costs decreased by 16% ($33,000).
The Grove Bowl increase is primarily related to an increase in utility costs due
to the increase in electric rates in San Diego. Although Valley Bowl's utility
costs increased also ($19,000), this increase was offset by a decrease in
payroll and lane maintenance expenses. The Company is currently evaluating
alternatives for a supplier of electricity that will significantly reduce the
volatility in utility rates. There was not significant change in direct selling,
general and administrative expenses.
RENTAL OPERATIONS:
Rental revenues increased primarily due to a 13% increase in the average rental
rate at the Company's office building. Rental costs increased due to an increase
in the rent expense for the subleasehold interest.
The equity in income of UCV decreased primarily due to a increase in UCV's
interest expense ($206,000) related to the increase in financing in October
1999. Otherwise, UCV's rents increased by 7% ($77,000) and the expenses
increased 3% ($13,000).
REAL ESTATE DEVELOPMENT OPERATIONS:
Development costs and expenses primarily consists of legal costs incurred to
contest the City of Temecula's attempts to down-zone the undeveloped land owned
by Old Vail Partners. Development costs decreased primarily due to a decrease in
legal expenses. Interest expense related to development activities primarily
relates to interest accrued on the past due and current assessment district
obligations of Old Vail Partners.
GOLF OPERATIONS:
Prior to January 2000, golf shaft sales were principally to custom golf shops.
In January 2000, Penley commenced sales to two of the largest golf equipment
distributors. In addition to increases in sales related to these two customers,
direct sales to the after market also increased, likely due to the credibility
and increased exposure from the Penley products being included in the catalogs
of these two distributors.
Operating expenses of the golf segment consisted of the following in 2000 and
1999
2000 1999
-------- --------
Costs of sales and
manufacturing overhead $458,000 $205,000
Research and development 68,000 68,000
-------- --------
Total golf costs 526,000 273,000
======== ========
Marketing and promotion 345,000 370,000
Administrative costs- direct 61,000 33,000
-------- --------
Total SG&A-direct 406,000 403,000
======== ========
Total golf costs increased in 2000 primarily due to an increase in the amount of
cost of goods sold related to increased sales, and an increase in manufacturing
overhead related to the plant facilities into which Penley relocated in June
2000.
11
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily due to fluctuations in interest
rates. The Company utilizes both fixed rate and variable rate debt. The
following table presents principal maturities and related weighted average
interest rates of the Company's long-term fixed rate and variable rate debt for
the fiscal years ended June 30.
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005 Thereafter Total
------------ --------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt .. $ 84,000 $ 39,000 $21,000 $22,000 $24,000 $1,855,000 $2,045,000
Weighted average
interest rate . 8.2% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2%
Variable rate debt $ 3,769,000 $ 6,000 -- -- -- -- $3,775,000
Weighted average
interest rate . 10.1% 10.5% -- -- -- -- 10.1%
</TABLE>
The amounts for 2001 relate to the nine months ended June 30, 2001.
The Company's unconsolidated subsidiary, UCV, has variable rate debt of
$28,768,000 as of June 30, 2000 for which the interest rate is 9.0 percent. The
principal cash flows for each of UCV's fiscal years ending March 31 is: 2001-
$349,000; 2002- $28,419,000; and $28,768,000 in total.
The Company does not enter into derivative or interest rate transactions for
speculative or trading purposes.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
As of September 30, 2000, there were no changes in legal proceedings
from those set forth in Item 3 of the Form 10-K filed for the year ended
June 30, 2000.
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults upon Senior Securities
N/A
ITEM 4. Submission of Matters to a Vote of Security Holder
--------------------------------------------------
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits: Financial Data Schedule
(b) Reports on Form 8-K: NONE
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTS ARENAS, INC.
By: /s/ Harold S. Elkan
----------------------
Harold S. Elkan, President and Director
Date: November 14, 2000
-----------------
By:/s/ Steven R. Whitman
---------------------
Steven R. Whitman, Treasurer,
Principal Accounting Officer and Director
Date: November 14, 2000
-----------------
14
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